On this blog we frequently write about how business owners who cheat on their taxes who did not escape detection in today’s age of electronic transactions and advanced audit techniques. Regardless of how sophisticated of a tax evasion scheme the individual thinks they have developed, the IRS and state tax agencies likely already have the tools and techniques to identify the fraud. Even in cases where the business owner may avoid an electronic or paper trail of transactions, an auditor can still determine that fraud is occurring. While it may seem tempting for a business owner to pad profits by failing to pay all or some tax due on income, sales, or use the owner is only setting him or herself up for long-term criminal exposure and crushing tax debt exposure. Since when the fraud is detected and the taxpayer is convicted he or she will owe the unpaid tax plus penalties and interest, no amount of short-term gain is worth a potential lengthy prison sentence. Remember, all it takes is $10,000 in unreported revenue to trigger a referral to a tax fraud specialist and a criminal investigation into a business owner’s conduct.

34-year-old Adnan Rashid is the full owner of two Peoria-area gas stations and the partial owner of two more stations. These businesses appear to attract a steady volume of customers and have apparently made Mr. Rashid particularly successful. However, prosecutors from the Department of Justice claim that Mr. Rashid’s success was illegally augmented by his failure to pay sales tax.

Federal prosecutors allege that Mr. Rashid failed to report more than $16 million in sales thus illegally reducing his sales and other tax liabilities. Prosecutors claim from 2007 to the beginning of 2013, Mr. Rashid conducted a scheme to minimize tax owed. They claim he submitted false sales and use tax returns to the state for all years during this period. The further charge that Mr. Rashid filed false personal and corporate returns in 2009 and 2010. The indictment also claims that Mr. Rashid attempted to conceal these acts by doctoring sales receipts and underreported his own income by more than $200,000.

Mr. Rashid is charged with 20 counts of tax evasion, submitting false tax returns, and mail fraud. Based on these charges, Mr. Rashid faces up to 20 years in federal prison and significant fines and penalties. Prosecutors claim that these alleged acts deprived the state of $1.2 million in tax revenues.

What Techniques Can Auditors Use to Identify Suspected Sales Tax Fraud?

There are an array of techniques that auditors can use to identify potential sales tax and other fraud. These techniques are in use at both the federal and state levels by the IRS and California Board of Equalization, respectively. Furthermore, prosecutors from federal and state agencies will often share information and work together to identify and prosecute individuals charged with significant tax fraud.

To start, these agencies can use methods of comparative analysis to determine that figures, financial reports, and tax figures are unlikely or implausible. They can simply compare the sales at a particular business or retail location to other similarly situated businesses. If the reported numbers fall outside of a certain tolerance, a red flag is raised for potential tax fraud. Furthermore, should numbers for the station seem implausible, the auditing agent can audit on a sample basis. While there are variations on how a sample audit can be conducted, in essence, the agent can use a certain time period to capture the volume of sales. He or she can then extrapolate based on this information. These are only a basic, high-level overview of two of the methods auditors can use to identify tax fraud. In reality, an array of more sophisticated techniques are available.

Facing Sales or Use Tax Fraud Charges? Work with an Experienced Tax Lawyer

If you are facing serious, criminal sales or use tax evasion charges, it is important to work with an experienced tax lawyer. Only the attorney-client privilege can provide the confidentiality you need to speak frankly with your lawyer. Speaking honestly is important so your tax lawyer can prepare a defense strategy that fits the particularized situation. However, working with an accountant or the original preparer is a nearly sure-fire way to prepare the government’s witness number one for the trial against you. First, the accountant-client privilege will not protect disclosures made should a criminal trial arise. Second, the original prepared has a direct conflict of interest and is likely to testify to protect his or her own reputation.

David W. Klasing is a dual-certified tax attorney and CPA with years of experience handling complex audits and criminal tax charges. To schedule a reduced-rate consultation call 800-681-1295 today or contact us online.

Gas Station Owner Faces 20-Count Indictment Due to Alleged Tax Evasion was last modified: November 18th, 2016 by David Klasing

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